starting a consulting/placement business

If I want to start an IT placement or consulting firm, and I have leads on contracts.... How can I determine if a contract is worth bidding on?

Most local firms have rates higher than mine (about 25% higher).
I would pay about 80%+ to the subcontractor doing the work (I wouldn't mind making 3-10k per contract).
Oversight would be minimal because the sub would be placed in yearly renewable contract.

Questions?
Do you think this business model is worth it?
Sub contract extremely knowledgable people and pay them most of the money.
What rate should I pay subcontractors should I win contracts?

If this business model is viable, then why aren't more people doing it?
I wouldn't get rich, but I could build a decent business (and build a great reputation based upon 1.expertise 2.low contract rate).

Notes:
Most firms charge more money (25% more than my rates).
Most firms pay people significantly less.
I would only focus on getting high or extremely high quality people.

I can keep my overhead low, and was wondering of any costs which I might not be aware of. Office space, phones, regular expenses would not be an issue because I already run a business out of the house. I was just thinking of branching out, it gets boring playing golf all day long, so I figured I would be more productive with another business.

I think the business model as you have described it is flawed and that is why it is not prevalent.

If the you are acting as a main contractor yourself and sub contracting then you will be expected to do all the project management which is a significant cost and definitely non-trivial. If you sub-contract the project management as well then you loose control of quality and costs.

A better business model would be to just take a commission from the subcontractor for finding them the projects. You could guarantee them their normal rates and put your percentage on top. Leaving the sub-contractor with the contractual obligations and the responsibilities. Even with this model your reputation will still depend on the quality of the sub-contractor and his ability to bring projects to a successful conclusion in time and on budget.

There's one main problem with paying 80%+ to the subcontractor(s)... you forget how much you will be involved. If you hook the client up directly with the consultants, then the client has no reason to do anything with you ever again. So you stay in the middle, and as a liaison, you can be very busy project managing and getting other things done. Keeping less than 20% of what you are being paid will make you feel like you are losing money based on the time you are likely to put in. Sometimes, I'm able to mark up a project 50% over what I pay my staff, and I still feel underpaid.

The referral idea is a good one. This is a contract I drew up for such a thing, though it's kinda designed for eBay Trading Assistants passing each other work. You can modify it and make sure it's legal for your state. Then, form some relationships with who would have been your subcontractors. :)

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